U.S. weapons maker Raytheon Co (RTN.N) on Thursday reported higher-than-expected earnings and revenue for the second quarter and joined other major defense companies in raising its forecast for the full year despite Pentagon budget cuts.
The company, which makes Patriot missiles and an array of other military equipment, experienced some delays in U.S. bookings as a result of Pentagon budget cuts imposed in March, but is "staying ahead of the curve" with continued cost-cutting and strong foreign sales, Chief Financial Officer David Wajsgras said.
Raytheon Chief Executive William Swanson told analysts that international sales rose 10 percent in the quarter, making them a key driver of the positive second-quarter results, and would fuel growth in coming years.
He said Raytheon was nearing its goal of having foreign sales account for 30 percent of total revenue and could set even higher targets. "As we get to that milestone (of 30 percent) we'll be thinking about 35, because you have to think in increments to go do it," he said.
Raytheon said it expected significant foreign business in the second half of the year, including Patriot missile orders from Kuwait and Turkey, and a deal with Qatar worth more than $1 billion. Several large U.S. deals were likely as well, the company said.
The company this month beat out Northrop Grumman Corp (NOC.N) to win a huge contract for a next-generation electronic jamming system for use on the U.S. Navy's EA-18G Growler aircraft, a deal worth billions of dollars in coming years.
Swanson said the award solidified the company's position as "a premier electronic warfare provider" and he was confident Raytheon would hold onto the deal despite a protest filed by competitor BAE Systems (BAES.L). The U.S. Navy has ordered Raytheon to stop work on the project.
Swanson said uncertainties about future U.S. budgets persisted but that Raytheon would continue to cut costs and leverage its investments in technology to maintain growth.
Wajsgras said strong international sales and continued cost-cutting should allow Raytheon to maintain its strong operating margin, now at 12.5 percent, into 2014.
Wajsgras said Raytheon still expects the additional budget cuts in fiscal 2013 imposed under "sequestration" to trim $500 million from bookings for the full year and about $400 million from revenue in the second half.
The company is pressing ahead to improve its operations and trim overhead by consolidating floor space, he said. A recent consolidation is ahead of schedule and will yield savings well in excess of the initial target of $85 million, he said.
Defense analyst Byron Callan at Capital Alpha Securities said aggressive cost-cutting by Raytheon and other arms makers had kept them ahead of the wave of budget cuts for now but that 2014 and 2015 might be another story.
"June quarter results are looking in the rear-view mirror. There are still an awful lot of unknowns beyond the control of contractors that will play out in the coming 12 to 24 months," he said.
Raytheon's results were largely in line with those reported earlier this week by Lockheed Martin Corp (LMT.N), Northrop Grumman Corp and other big weapons makers.
Investors drove defense shares up on the positive news this week, with Northrop and Lockheed hitting all-time highs. Raytheon shares reached a 52-week high of $70.70 on Thursday, but fell back to around $69.37, just below Wednesday's close.
Raytheon said it now expects earnings per share of $5.51 to $5.61 from continuing operations this year, up from an earlier forecast of $5.26 to $5.41.
It raised its full-year revenue forecast to a range of $23.5 billion to $23.7 billion, lifting the lower end of its previous range from $23.2 billion.
Second-quarter earnings rose to $1.50 per share from $1.41 a year earlier, while net income attributable to the company increased to $488 million from $471 million.
Revenue, which fell in the first quarter, climbed 2.1 percent to $6.12 billion. The company's backlog fell to $32.4 billion from $33.9 billion a year earlier.
Analysts, on average, expected earnings of $1.30 per share on revenue of $5.8 billion, according to Thomson Reuters I/B/E/S.
Raytheon said the increase in earnings per share was mainly due to operational improvements and stock buybacks that reduced the number of its shares outstanding.
The company's integrated defense and missile systems businesses reported higher revenue and earnings in the latest quarter, but sales and profits fell at both the intelligence, information and services sector, and the space and airborne systems unit.
(Reporting by Andrea Shalal-Esa; Editing by Gerald E. McCormick, John Wallace and Steve Orlofsky)